Lesson 1

Introduction
Introduction to
to
Business
Business Finance
Finance

1
 ACTIVITY:
Answer the following questions

#1 #2 #3 #4
How much What are What do Where do
is your the things you do you get
daily you spend with the additional
allowance your money money?
? money on left?
a daily
basis?

2
What if Finance?

Finance can be defined as the art and science

of managing money. Making the best decision
when that decision involves money

3
 How much money are you spending?

 Do you efficiently distribute your

allowances for your daily expenses?

4
 Budgeting
The act of estimating revenue
and expenses over a period of
time.

5
 What happens to the excess
cash or allowance you have
received?

6
 Investments
Comes in many forms that will
generate income or appreciate
in the future.

7
Where do you get
additional money?

8
 Sources of Funds
People/Institutions that would
gave you money or any
monetary materials.

9
Concerns of Finance: Decisions

How How How does How does

much of much one one raise
he does one invest add’l
earning entity their funds?
are save or excess
spent? need? savings?

10
General Areas of Finance:

Personal Public Finance Corporate

Finance Finance

11
 Personal Finance

 Generally involves analyzing an

individual’s or a family’s current
financial position, predicting short
term and long needs and executing
a plan to fulfill those need within
individual financial constrains.

12
 Public Finance

 The study of the role of the

government in the economy.it assess
the government’s revenue and
government expenditure of the public
authorities and the adjustment of
one or the other to achieve desirable
effects and avoid undesirable ones.

13
 What is Finance (cont.)
 A well-developed financial system is a hallmark and
essential characteristic of any modern developed nation.
 Financial markets, financial intermediaries, and
financial management are the important components.
 Financial markets and financial intermediaries facilitate
the flow of funds from borrowers to savers.
 Financial management involves the efficient use of
financial resources in the production of goods.

14
15
THE BUSINESS CONCEPT

 Organization or enterprising entity

engaged in commercial, industrial or
professional activities and activities
in producing and selling goods and
services

16
FOUR KINDS BUSINESS:
MANUFACTURING MERCHANDIZING
1 produces or 3 selling products
developed at retail price
products

SERVICE HYBRID
2 deals in selling
4 have the
intangible goods characteristics of
two or more
kinds of business

17
 Basic forms of Business
Organizations

 Sole proprietorship:- A business owned

by one person and operated for his or her
own profit

 Partnership:- A business owned by two

or more people and operated for profit.

 Corporation:- An intangible business

entity created by law
18
 Basic forms of Business
Organizations

 Limited liability company

 Cooperative

19
 Sole Proprietorship

 Advantages:
 Ease of formation
 Subject to few regulations
 No corporate income taxes

 Disadvantages:
 Limited life
 Unlimited liability
 Difficult to raise capital

20
 Partnership

 A partnership has roughly the same

advantages and disadvantages as a
sole proprietorship.

21
 Corporation

 Advantages:
 Unlimited life
 Easy transfer of ownership
 Limited liability
 Ease of raising capital

 Disadvantages:
 Double taxation
 Cost of set-up and report filing

22
Basic Forms of Business
Organization

Read Only 23
 Percentage share of
business organizations
Corp.
15%
S Prop.
P'ship 75%
10%

24
 Corporate Organization

S T O C K H O L D E R S

Board of Directors Stockholders

usually meet
President once a year.
(CEO)

Vice President VP of Vice President

Operations Finance Marketing
{CFO}
25
Corporate Organization

VP of Finance
Treasurer Controller
Capital Budgeting Cost Accounting
Cash Management Cost Management
Credit Management Data Processing
Dividend Disbursement General Ledger
Fin Analysis/Planning Government
Pension Management Reporting
Insurance/Risk Mngmt Internal Control
Tax Analysis/Planning Preparing Fin Stmts
Preparing Budgets
Preparing Forecasts
26
 Corporate Organization

Another
Example

27
28
 The Financial Environment

Financial Institutions
 Financial institutions are intermediaries that channel
the savings of individuals, businesses, and
governments into loans or investments.These
institutions accepts money from savers and use those
funds to make loans and other financial investments
in their own name. They include commercial banks,
saving institutions, mutual funds etc

29
 The Financial Environment
Financial Markets
 Financial markets provide a forum in which suppliers
of funds and demanders of funds can transact business
directly.
 The two key financial markets are the money market
and the capital market. Transactions in short term
marketable securities take place in the money market
while transactions in long-term securities take place in
the capital market.
 Within the money and capital markets are the primary
& secondary market.(Refer to the next slide)
30
 Primary & Secondary Markets
 Primary Market
The primary market is the one in which a corporation or
government is directly involved in and receives the proceeds
from the transaction.When a corporation issues securities,
cash flows from investors to the firm.
(Usually an underwriter is involved)

 Secondary Markets
The secondary markets involve the sale of “used” securities
from one investor to another. Once issued, securities then
trade on the secondary markets such as the Karachi Stock
Exchange or NASDAQ.Securities may be exchange traded or
trade over-the-counter in a dealer market.
31
 Financial Markets

Stocks and
Investors
Bonds
Firms securities
Money Ali Sami
money

Primary Market
Secondary
Market

32